Anti Assignment under IRC 401(a)(13)(C)

[30Rock]

In the case of a trustee who embezzled from his employer, and contributed some of the embezzled funds to his 401k account, once the court order is issued convicting the trustee, how does the plan distribute this? Is court order sufficient for the vendor to cut a check to the employer, or does the convicted participant have to sign off this distribution?

Any help would be great!

[ETA Consulting LLC]

The trustee contributed to the plan? From your fact pattern, it doesn't appear as if it was an elective deferral from salary nor an employer contribution. So, under what guise was the contribution made?

[30Rock]

Stole money from employer by giving himself fake raise which ended up in contributing more to the plan. I do not have all facts, but could have submitted phoney ER contributions to his acccount.

In addition he amended the plan to allow for loans and then took out max loan and never repaid it.

Court has approved the conviction order so now we just have to offset the account, my question is how to get it out. I assume he has been fired so there would be a distributable event. Do we just issue a check to the employer?

[david rigby]

A few previous discussions on this topic. Try the Search feature, using search terms such as "embezzle", "embezzlement", etc.

[mbozek]

Stole money from employer by giving himself fake raise which ended up in contributing more to the plan. I do not have all facts, but could have submitted phoney ER contributions to his acccount.

In addition he amended the plan to allow for loans and then took out max loan and never repaid it.

Court has approved the conviction order so now we just have to offset the account, my question is how to get it out. I assume he has been fired so there would be a distributable event. Do we just issue a check to the employer?

Sub para © only applies if the participant is convicted of a crime or breach of fiduciay duty involving the plan, not general theft from the employer. Fact that he gave himself a raise with stolen funds is not grounds to remove funds from plan. In one case pension benefits of union official who stole funds from the UNION could not be seized under ©.

[ESOP Guy]

Sorry story time:

The one time I had a client in this situation this is how it played out.

A bank teller was caught stealing. She pleads guilty to stealing hundreds of thousands dollars. The bank’s attorney got the local DA and judge to go along with this plan.

The judge told the defendant she would get sentence A if she deposited her ESOP distribution into an account with the bank. Then she had to sign the bank account over to the bank. She would get sentence B is she did not reimburse the bank. I suppose it is obvious but sentence B was much harsher then A.

Strictly speaking she made a free will choice about her benefits.

It sounds like your client might want to look into something like that as a solution.